Why GM and Toyota's Recalls Give Ford an Incredible Opportunity to Grow Market Share

Thanks to technical flops by GM and Toyota, Ford has the chance to mop up more market share.

May 1, 2014 at 11:44AM

Thanks to several recent events in the vehicle market, Ford's (NYSE:F) future just got a lot brighter. Two of Ford's major competitors, General Motors (NYSE:GM) and Toyota (NYSE:TM), have been suffering from numerous recalls.

At the same time, Ford continues to innovate and expand into previously untapped markets.

GM under scrutiny
In the latest hash of recalls in the auto industry, General Motors has been forced to recall 3.3 million cars in February and March due to faulty ignition switches. GM had previously allocated $300 million to cover the costs related to these recalls, however these costs are now expected to exceed $1.3 billion. With wave after wave of bad publicity, the real cost could be realized much later when GM experiences depressed sales because of decreased consumer confidence.

Toyota also plagued by recalls
In much the same way, competitor Toyota has experienced significant problems with quality and recalls. Toyota's unique selling proposition is dependability and quality, but following Toyota's recall of more than 10 million vehicles in 2010 due to unintended acceleration the company's reputation has become somewhat tarnished.

The same accusation of losing focus on quality has resurfaced as Toyota recalled 6.4 million vehicles this year. These recalls were spread over 25 different models and involved multiple mechanical issues.

This stream of recalls has had a large negative financial impact on the company. In fact, the recall fiasco of 2010 finally came to an end this year, resulting in record breaking total costs in excess of $3.2 billion. 

An unfortunate record
This year has started with an unprecedented number of recalls in the US, with 13 million vehicles already recalled. Both Toyota and GM have suffered the most, with 6.4 million vehicles and 4.8 million vehicles recalled respectively. In contrast, Ford has recalled only 434,000 vehicles this year.

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A strong history, stronger future
As a result of this wide variance in recalls, Ford stands ready to take advantage of the opportunity created by the weakening in GM and Toyota. Ford has been extremely innovative as of late. Even with a strong history of its F-series being the top selling truck in America and the second-best selling vehicle ever with over 35 million sold, the leadership at Ford is not afraid to change the status quo.

Ford has been quicker than some other vehicle manufacturers to adopt and invest in new technologies. The first major example of this occurred in 2011 when Ford began to implement its EcoBoost engine, which utilizes direct injection technology coupled with a turbocharger to produce more power with less fuel.

The EcoBoost engine has experienced a higher than expected adoption rate of 38% in new Ford vehicles . Additionally, Ford has decided to use aluminum in the body of its 2014 F-150 to cut 700 pounds off the truck and make it even more fuel efficient.

An opportunity for progress
Due to the innovative approach that Ford is taking in trying to increase its share of the auto market, Ford has occasionally pushed itself beyond technological limits. As a consequence, since 2009 Ford has dropped significantly in the JD Power quality survey due in large part to the poorly developed and convoluted MyFord Touch and Sync systems.

Ford is seeking to resolve this problem, however. In February, it chose the BlackBerry QNX as the platform for its next-generation Sync system to replace previous supplier Microsoft. If this partnership resolves the technological issues hampering Ford's quality, it is very likely that Ford could improve its quality ratings.

International opportunities
Ford has recently expanded its market in China as well, with sales rising 45% year over year. Ford is also in the midst of an aggressive three-year, $4.9 billion plan to double its passenger vehicle production capacity and sales in China.

Ford has been expanding faster in China than any major competitor since mid-2012. Ford's expansion is due in large part to the popularity of its sport utility vehicles and the Focus, the top-selling passenger vehicle in China last year .

Ford's popularity in China is crucial for future growth because in 2013 China became the first country to sell over 20 million vehicles in a year.

The road ahead
Ford is at a critical juncture in the vehicle market today. Part of its success or failure depends on effectively continuing to implement innovative technology, and another part contingent on exploiting the weakness in the current American market.

But the opportunity is there. While GM and Toyota are recalling products, Ford is just starting to rev its engines.

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Article by Evan Avery and edited by Marie Palumbo and Chris Marasco. Evan Avery is long Ford. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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